Advertising to children is a sensitive and emotionally-charged issue
because children are easily influenced and like to experiment with new
things. The proliferation of products, advertising, promotions and media
targeted to children is of concern to lawmakers, the industry and the
general public. Children's advertising is under attack because it is perceived
as "making kids want what they don't need" and puts pressure
on parents to respond to those needs. More recently, advertising is accused
of being a factor in causing children's obesity. While there are more
regulations in effect than ever before, there is a public outcry for even
more.

Much is at stake. The children's market today (through age 12) is estimated
to represent $500 billion, consisting of both personal spending of $200
billion--primarily for snacks, soft drinks, entertainment and apparel--and
$300 billion in directly-influenced spending in these same categories
plus food, toys, health and beauty aids, gifts, accessories and school
supplies. Another $500 billion worth of purchases are indirectly influenced
in categories such as recreation, technology, vacations, etc. The spending
power of children is, altogether, in the area of $1 trillion. (1)

According to the American Academy of Pediatrics (AAP), the average child
watches about four hours of television a day and sees more than 20,000
commercials each year, often for high-fat, high-sugar and high-salt snacks
and foods.(2) By the time American children finish high school, they have
spent nearly twice as many hours in front of the television set as in
the classroom. (3)

LEGISLATION

The debate about Children's advertising has prompted legislation over
the years. Members of Congress have introduced bills to limit advertising
time on children's programming, mandate educational content of those programs
and restrict "program-length commercials."

In 1990, The Children's Television Act was passed and remains in effect
today. Interpreted and enforced by the Federal Communications Commission
(FCC), it applies to the networks, local broadcasters and cable operators.
The bill stipulates that for:

Ages 12 and under: The amount of advertising
aired during children's programming should be limited to 10.5 minutes
per hour on weekends and 12 minutes per hour on weekdays -- still more
than for adult prime time;

Ages 16 and under: The FCC is required
to consider the amount of educational programming that a broadcaster
presents in approving license renewals and examine the role of "program-length
commercials." (4)

The FCC subsequently ruled that a program based on a toy or children's
product cannot contain advertising for that product within the program,
although it may directly follow the program. "Program-length commercials,"
however, are not prohibited for fear of jeopardizing positive shows like
Sesame Street, despite the fact that it has inspired countless lines of
toys.

The FCC also proposed that stations be required to broadcast three hours
of educational children's programming per week. Six years later (July
1996), this proposal became an
FCC ruling which broadcasters (not cable operators) must adhere to in
order to qualify for license renewal.

The FCC recently accused Viacom Inc. (parent company of Nickelodeon)
and the Walt Disney Company (parent company of the ABC Family Channel)
of violating limits on the use of advertising during children's programming.
In October 2004 Viacom and Disney together agreed to pay $1.5 million
in fines, the largest total fine the FCC had ever levied involving commercial
advertising and children's programs. (5)

A GROWING CONCERN: ADVERTISING FOOD TO KIDS

Childhood and adolescent obesity is fast becoming a global health concern
as figures reach epidemic proportions. Almost 16% of adolescents ages
12-19 and 15% of children ages 5-11 are currently obese. These numbers
have more than doubled for children and tripled for adolescents in the
past two decades. As is the case with tobacco and alcohol, political leaders,
consumer advocates, and legal professionals have attributed the growing
rate of childhood obesity to unregulated advertising.

The issue of food marketing and obesity had only surfaced in state legislatures
and local courts in June 2004 when Senator Tom Harkin (D-Iowa) introduced
a broad bill to combat chronic disease and obesity. This bill, which was
not passed in 2004, but is viewed as a possible precursor of future legislation,
would have granted the Federal Trade Commission (FTC) the power to restrict
advertising to children.(6) The issue is gaining momentum at a fast pace
with urgings from the World Health Organization (WHO) and the American
Psychological Association. The WHO has already issued white papers in
several other countries, documenting the relationship between food advertising
and childhood obesity, and as a result, several European Union (EU) countries
have placed restrictions on food advertising. The WHO was a leader in
the fight to restrict tobacco advertising worldwide and affected a great
deal of change in this respect. They will undoubtedly play an important
role in this new debate. The American Psychological Association has echoed
the WHO in a recently released report, calling for more stringent regulations
of child-targeted food advertising.

The outgoing chair of the FTC (in 2004) and the Secretary of Health and
Human Services both oppose restricting advertising in favor of educational
campaigns to better inform parents and children about good eating and
fitness habits. To this end, an ad campaign was launched by the Ad Council.

Industry response to the issue of obesity and food advertising to children
has been preemptively strong. In June 2004, The National Advertising Review
Council (NARC) issued a White Paper entitled, Guidance for Food Advertising
Self-Regulation, setting forth the major issues surrounding the volatile
debate over food advertising and childhood obesity. Citing the epidemic
figures of childhood obesity, NARC recognizes that food advertising may
indeed be a factor in the epidemic's fast growing rate. However, rather
than calling for restrictions, NARC has proposed increased self-regulation
by marketers and advertisers. NARC believes that it is within its power
to bring about closer monitoring of food advertising to children. (Please
see Addendum on the Children's Advertising Review Unit (CARU) at the end
of this presentation.)

Likewise, many agency organizations such as the American Association
of Advertising Agencies (AAAA) and the Association of National Advertisers
(ANA), as well as food manufacturers, oppose legal restrictions on food
advertising. Along with Coca Cola, McDonalds, General Mills, and Nestle,
the AAAA has formed the American Council on Fitness and Nutrition to promote
physical activity in schools, effective nutrition education, and applied
research on how to bring about lasting behavioral changes. The industry
believes that any legal injunctions against food advertising is a violation
of the First Amendment. The AAAA has formed a lobby with some of its members
to appear before Congress in order to voice industry concerns about the
growing movement to impose restrictions on food advertising. Many have
dubbed food "the new tobacco" and the industry is preparing
to protect and defend its position.

While there are no federal restrictions in place in the U.S., food marketers
are doing what they can to help curb the obesity problem. Kraft has voluntarily
suspended advertising of some of its less-nutritious products, like Kool-Aid
and Oreos, from television, radio and print aimed primarily at children
age 6 to 11. Fast food chains, such as McDonalds and Wendy's, are now
offering healthier alternatives to french fries and soft drinks.

INDUSTRY POSITION

Advertisers need to gain the trust of children and their parents through
effective and honest advertising. In turn, parents must take responsibility
for their children: monitor what they watch and read, determine how they
spend their free time, and educate them to become responsible and informed
consumers. Advertising to children will become less controversial only
when advertisers and parents assume mutual responsibility for its content
and exposure.

With respect to broadcast advertising, the industry believes that current
guidelines - - the careful review and approval process of commercials
by the advertiser, its agency, and the station or network that will air
the advertising - - provide sufficient controls for children's advertising.
According to the AAAA, whose member agencies place more than 80% of all
national advertising in the U.S., product commercials aired during children's
programming are designed to "show the product's features and explain
its benefits in terms understandable to children and sensitive to their
special attitudes and perceptions."

The Children's Advertising Review Unit (CARU) was founded in 1974 to
promote responsibility in children's advertising as part of a strategic
alliance with the major advertising trade associations through the National
Advertising Review Council (NARC) comprising the AAAA, the AAF, the ANA
and the Council of Better Business Bureaus (CBBB). CARU is the children's
arm of the advertising industry's self-regulation program and evaluates
child-directed advertising and promotional material in all media to advance
truth, accuracy and consistency with its Self-Regulatory Guidelines for
Children's Advertising (www.caru.org/guidelines/index.asp) and laws. Although
the great majority of its inquiries are the result of its own monitoring,
CARU also entertains consumer complaints and challenges from competing
advertisers. CARU also provides educational and consulting services to
assist advertisers in adhering to its policies.

CARU's Guidelines are used as the industry standard. The networks have
guidelines similar to CARU's, while cable stations are independent and
individually select which guidelines to follow.

OVERVIEW OF CARU GUIDELINES
CARU's Guidelines address the level of children's knowledge, sophistication
and maturity. They apply to all advertising directed to children under
age 12, including print, radio, broadcast and cable television, as well
as the Internet.

CARU's Guidelines cover the following eight areas:

Product Presentations and Claims

Sales Pressure

Disclosures and Disclaimers

Comparative Claims

Endorsements and Promotions by Program or Editorial Characters

Premiums, Promotions and Sweepstakes

Safety

Interactive Electronic Media

INQUIRIES BROUGHT BEFORE CARU
When an advertisement appears misleading, inaccurate or inconsistent with
CARU's Guidelines, CARU requests that the advertiser substantiate any
objective claims or demonstrate (through consumer perception, safety or
other studies) that the advertising otherwise complies with the Guidelines.
If a claim cannot be substantiated, or compliance with the Guidelines
cannot be verified, the advertiser is asked to modify or discontinue the
advertising. If the advertiser declines to comply with a CARU decision,
CARU will refer the matter to an appropriate government agency - in most
cases the FTC or state attorney general. If an advertiser disagrees with
CARU's decision, it may appeal to the National Advertising Review Board
(NARB) - a representative group of advertisers, advertising agencies,
media and the public sector which is the appellate branch of the National
Advertising Review Council (NARC), the advertising industry's self-regulatory
forum.

In 2003, CARU initiated 144 inquiries, up from 119 in 2002. Of these:

six were substantiated

134 were modified or discontinued

one was sent to the FTC

three were compliance cases where the advertiser had failed to
comply with a prior decision.

The self-policing system works. Since 1974, all but ten of the inquiries
investigated by CARU were resolved through the self-regulatory process.
None of these has been appealed to the NARB, one was referred to the FCC
and nine have been referred to the FTC. Violations of CARU's voluntary
guidelines occur more often on independent stations and cable channels
than on network affiliations.

(Note: See Industry Regulations section.)

CARU GUIDELINES FOR INTERACTIVE MEDIA

CARU's Guidelines address all media. However, increased understanding
of children's use of the Internet contributed to the development of specific
guidelines for interactive media in 1996. In order to correspond with
the Children's Online Privacy Protection Act (COPPA), which became effective
in April 2000, these guidelines apply to Web sites directed to children
under 13 years of age.

AAAA supports maximum possible self-regulation for the Internet, but
continues to work with government regulators to formulate privacy protection
for all online consumers, including children. AAAA generally characterized
the COPPA rules as workable, and applauded the designation of the CARU
Guidelines as a "safe harbor" under COPPA.

The guidelines related to the Internet include:

Reasonable efforts, using all available technology, should be made to
establish full disclosure and choice exercised by a parent or guardian
when a site wishes to obtain personally identifiable information from
children for marketing purposes.

Advertisers who maintain children's sites should not knowingly
link their sites to pages of other sites not in compliance with CARU's
guidelines.

Advertisers who communicate with children via e-mail should remind
and encourage parents to regularly monitor their children's e-mail and
online activities.

Information collected for the purpose of obtaining verifiable parental
consent should not be kept in retrievable form by the site if consent
is not received in a reasonable amount of time.

While these guidelines highlight issues unique to Internet and online
advertising to children under 13, they should also be used within the
broader context of overall Guidelines, which apply to advertising in all
media.

FOOTNOTES

1. Paul Kurnit. KidShop.
2. The New York Times. June 2, 2002.
3. The New York Times. August 3, 2004.
4. Cable operators are exempt since the FCC does not approve its licenses.
5. The New York Times. October 22, 2004.
6. The New York Times. July 21, 2004.